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Why Ford is dumping Microsoft

Rick Newman
Senior Columnist
The Exchange

An industry affiliate tests out Ford's SYNC connection and entertainment system inside a Ford Fusion at the Consumer Electronics Show, Wednesday, Jan. 9, 2013, in Las Vegas. Ford's SYNC connects the car stereo and navigation system to a user's mobile device. (AP Photo/Julie Jacobson)

When Bill Gates announced a new partnership with Ford Motor Co. (F) in early 2007, he declared: “Our ambition is to give you connected experiences 24 hours a day. We’re going to have Ford cars leading the way and showing you how to do that.”

It didn’t quite work out that way. The Sync system Ford developed with Microsoft (MSFT) did become one of the most advanced systems for controlling mobile devices, such as phones and music players, through a vehicle’s dashboard controls. It wasn't exactly what consumers were looking for, however, which is why seven years later, Ford is dumping Microsoft for technology powered by BlackBerry (BBRY), the former smartphone maker that has become a poster child for disruptor-turned-disrupted.

For BlackBerry, it’s a rare and badly needed win. The company has endured a 45% drop in revenue since 2011 as phones powered by Apple (AAPL) and Google (GOOG) software pushed the once-ubiquitous BlackBerry out of the market. The Canadian company’s stock, down 90% from its 2009 peak, enjoyed a 6% surge on news of the Ford deal, along with new hopes that BlackBerry's popular messenger service might have a bolder future following Facebook's (FB) acquisition of WhatsApp. Shares of Ford and Microsoft were little changed.

The Microsoft-powered Sync system, an inexpensive option on most Ford models and a standard feature on most Lincolns, allows users to connect a music player or smartphone to the car and operate it using a series of voice commands. In most vehicles, the mobile device could also be operated through a touch screen or other dashboard controls, but the voice commands supposedly allow the driver to play music, send text messages and place or receive phone calls simply by speaking, without taking his or her eyes off the road to hunt for menu options on a screen.

Modern problems

But Sync has never been as seamless as Ford and Microsoft promised. Many drivers find it inherently awkward to talk to their car, much as some iPhone users reject the mild-mannered services of Siri, the computerized concierge. Getting full use out of Sync requires memorizing dozens of voice commands. Making a mistake can lead to computerized dead ends, like giving the wrong answers when prompted to choose an option on an automated customer-service call. Sync users frequently complain about abandoning the confusing voice-command system and reverting to the touch screen, which can be confusing itself -- defeating the purpose of a hands-free system in the first place.

Consumer Reports may have been the most prominent critic of Ford’s Sync system and an upgrade known as MyFord Touch. In 2010, CR praised Ford for “pushing the connectivity envelope” with Sync, but also complained that “not one of us to date has ever been able to make it work.” As the magazine’s auto testers got more familiar with the system, their criticism intensified. One review questioned whether Sync represented “intuition, or insanity?”

Consumers complained too, with Ford falling sharply in J.D. Power quality ratings in a single year -- almost entirely because of frustration with Sync. In the latest Power quality survey, Ford ranked well below average, and Lincoln ranked average. In Consumer Reports' latest reliability ratings, Ford came in third from last and Lincoln second from last.

This has occurred as Ford has been executing an otherwise successful turnaround under CEO Alan Mulally, without any direct aid from the U.S. government, unlike crosstown rivals General Motors (GM) and Chrysler. In most ways, Ford’s vehicles have gotten considerably better, with Sync being the only glaring exception. It may be impossible to quantify, but a poor showing in quality and reliability surveys has almost certainly cost Ford sales.

Ford is hardly the only automaker struggling in its effort to bring the digital revolution to the dashboard. The basic challenge is to find a way to allow users to do everything they’ve gotten used to on their smartphones, and make money off new offerings, without causing so much distraction that it becomes a safety risk. BMW drew jeers when it rolled out its menu-driven iDrive system (for Internet drive) in the early 2000s. Cadillac’s Cue system, meant to emulate a tablet device, received heavy criticism when it debuted in 2012. In Consumer Reports’ latest reliability survey, the biggest problem car owners complained about, by far, was balky and overcomplicated in-car electronics.

Improving communication

Ford has modified Sync several times to make it more appealing, adding back some physical buttons, for example, that make it easier to do simple things like call up a radio station. But the new deal with BlackBerry, and the end of its deal with Microsoft, seems to signal that those upgrades weren’t enough.

While BlackBerry is known for its mothballed smartphone operation, it also owns networking software known as QNX that’s considered highly robust and is used by a variety of corporations, including Volkswagen, BMW and many auto suppliers that build components such as navigation systems. The Ford arrangement isn’t a panacea for BlackBerry, since QNX probably accounts for less than 10% of revenue. Still, it represents an important foothold in a growing market.

The deal will also reportedly cost Ford less than the Microsoft pact, though the savings, which Ford hasn’t disclosed, will represent a tiny fraction of the automaker’s $125 billion in annual expenses.

It's also a small but notable setback for Microsoft, which has struggled in its effort to compete with Google and Apple in the mushrooming market for mobile connectivity. With the smartphone market maturing, many analysts view “connected cars” as the next big opportunity for mobile technology, including the possibility of cars communicating with each other to help ease traffic, reduce collisions and perhaps even drive themselves.

But first cars need to learn to communicate better with their human masters.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.